Thursday, September 21, 2023

Why Management Loves Unions!

Unions were seen as a threat to industry until managers realized they could be co-opted to help the company, instead of the workers.

Unions are in the news these days, as union membership starts to increase and more and more businesses are unionized - or unions try to unionize them.  But oddly enough, some companies, while publicly grousing about how unions are screwing up their business, actually benefit from them and often manipulate unions into helping the company obliterate competitors or screw consumers.

We just had a big Teamsters strike, and it was settled after the Teamsters bankrupted Yellow Freight Lines.  Yellow was a weaker company than others and the strike quickly caused the company to fold.  Who benefits from this?  Other freight companies of course - such as UPS, who quickly settled with the Teamsters after Yellow folded.  They could afford to settle now, as the much of the freight traffic from Yellow would end up on their loading dock - increasing their profitability.

And historically, this has been the case.  In the 1950's and 1960's, some storied old car brands went bust, such as Studebaker, Nash, Hudson, and Packard.  Nash and Hudson became American Motors, but eventually, that too, folded in to Chrysler (although some say it was really vice-versa).  Studebaker had high labor costs and restrictive work rules under its UAW contract and could not afford to compete with GM, Ford, and Chrysler, who had the budgets to develop new cars that would meet new safety and emissions standards.  At the very end, Studebaker had one car model for sale, made in Canada.  They pulled the plug, realizing their paltry sales would not support the research needed to comply with future laws.  By that time, of course, both their engines and transmissions were being made by GM anyway.

So the unions, while causing headaches for management, also obliterated smaller competition at the same time.  It was a love-hate relationship between the company and the unions.  Of course, it all fell apart when foreign manufacturers came to the US and opened non-union plants.  Well, most of them, except Volkswagen, which opened a union plant in Pennsylvania which quickly closed as the costs were too high and the quality too low.  VW came back, of course, but workers voted down efforts to unionize.  Good thing, too, as the UAW would have shut down the plant as a favor to GM.

There was, of course, a scandal involving the UAW leaders taking bribes from automakers to have "labor peace."  Act shocked - I know.  Historically, many unions were hijacked by organized crime, which used union leverage to extract bribes in exchange for a strike-free workforce.  Apparently, some UAW leaders decided to do this as freelancers.

Today, the UAW is on strike, and already the car makers are promising a "car shortage" as a result.  How convenient for them!  Prior to the pandemic, there was a surplus of cars on the world market and dealers had to wheel-and-deal to get you to buy.  No one paid sticker price for a car back then, and "back then" was 2018.  The pandemic changed all that, and the carmakers paid attention.  By making fewer cars they made more money per car as rebates and discounts weren't needed.

When I was at GMI they taught us that market share was meaningless (something VW chased for years and nearly bankrupted the company!).  "We can make a million cars and make $1000 per car, or sell one car and make a Billion dollars from it - there is no difference!"  And while selling a billion-dollar car is hard to do (but not impossible, it seems) the idea has merit.  Overall profits mean more than market share.  So, sell less cars, use less effort, and make the same amount of money -  if not more!

The pandemic ended and cars and trucks and SUVs started cluttering up dealer lots.  Shortage over, folks!  Back to normal!

We can't have that, can we?

So, very conveniently for the car companies, the UAW goes on strike, and creates a new shortage of cars, driving up prices across the board.  This of course, helps the non-union companies as well as the unionized ones.  In fact, it could backfire, as the F150 buyer might be tempted to look across the street at a Tundra or a Titan from Toyota or Nissan.

Maybe this isn't the case, though.  Maybe the strike is part of this nationwide trend where people are upset that upper management takes home millions of dollars in stock options, while they get paltry raises that don't even keep up with inflation.   My former classmate at GMI, Mary Barra, makes $30M a year in salary and stock options.  Is that a justified compensation for any executive anywhere?  Bear in mind that her compensation is on the low end of the scale compared to some companies where CEOs take home hundreds of millions a year - or more.

GM used to settle strikes in a panic, back in the day.  Again, as our GMI professors told us, "Every minute, a new Chevy Caprice comes off the assembly line, that's $5000 in GM's pocket.  If you have a strike for even a few days, it costs the company millions of dollars!"  So back then, management cowered in the event of a strike.

Today?  I am less sure - it may all be political theater for the plebes to consume.  Conservatives can whine and moan about how unfair the union is being - after all, managers are paid in stock options and how can they make millions if the plants are idle?  Liberals can say "stick it to the man!  Unions, yay!" and both sides declare victory in the end.

Meanwhile, the consumer, looking to turn in his leased car at the GM dealer, finds out he owes $5000 in excess wear charges - which will be waived if he buys or leases a new GM vehicle.  Problem is, there are only six on the lot, all in hideous colors, and all priced $3000 over sticker - no haggling!

That is what happened to people I met during the pandemic.  They were screwed - which is another reason why leasing really sucks.  I feel sorry for you (not really) if your lease expired during this new "car shortage" - when will you ever learn?

If this strike lingers on for longer than expected, don't be surprised.  GM will benefit from a car shortage, in the short-term and even in the long-term, as they will claim it will take months to re-fill the "supply chain" once the strike ends.

Hope you aren't in the market for a pickup truck anytime soon!